Hardship letters are like any type of tale, they must be clear, they must be simple, and must drive your argument like a B52 in a battlefield – powerfully. Unfortunately, many loan modifications get thrown in the wrong stack simply because homeowners fail to explain their situation effectively.
Step 1. KISS
Keep it simple stupid! The hackneyed cliché holds true in hardship letters also. Loss mitigation departments, those that have the fascinating job of reading about every lender and his mother´s problems are overwhelmed with loan modification applications. They don´t want your autobiography, they certainly do not want 10 pages of you crying on their corporate shoulder. A good hardship letter does not have to be more than a page long.
Step 2. Address the Hardship clearly.
The key point you need to make is why you can´t afford your current mortgage, or why you won´t be able to once your mortgage rate adjusts or some other tragedy occurs. This needs to be specific, vague musings on how difficult life is will get you nowhere. Try for a reduction in income, the death of a spouse, illness or a change in the interest rate. It needs to be something specific you can prove not some vague musings on the difficulties of life.
Step 3. Express commitment.
It is very important you make it crystal clear you WANT TO PAY FOR YOUR MORTGAGE. As you probably guessed lenders do not appreciate borrowers changing their mind on paying for a loan they were very happy to sign for when they wanted to buy their home with somebody else´s cash. The letter needs show you do not want to continue delinquent, or become delinquent, but you want to find a solution so you can keep your home and they can get paid for the loan.
Let us illustrate these three points with a sample letter that follows these three steps.
You can use this sample and apply it to your personal circumstances. Keep in mind there is no one “RIGHT WAY” of writing a hardship letter, although there are plenty of wrong ways.
Some feel that a handwritten letter is more personal and has more chances of being empathized with. However, this only works if the handwriting is clear enough to be read easily.
Date:
To: (Lender Name)
Address of lender.
Re: Loan Number. (It is always a good idea to give all the reference numbers and information you can to make things as easy as possible for the loss mitigation officer, keeps him in a good mood)
(STEP 1. Remember to keep it simple and short)
To Whom It May Concern: (Generally it is better to address a specific person, however your hardship letter will probably be read by many people so there is not great advantage in being specific in this case)
The purpose of this letter is to explain the reasons why I am behind in my mortgage payments (or will be soon due to the hardship you are about to explain). After exhausting all my resources I have only one alternative left and that is to apply for a mortgage loan modification.
The main reason I am late in my payments is (STEP 2. Here is where your hardship reason comes, keep it simple and clear, and avoid vague generalities). This has caused me to become further and further behind in my payments. I cannot refinance my home because the value of my home has dropped by xxxx (this is generally viewed as a preferable option to lenders so it is a good idea to explain why it is not possible, which with the number of underwater homes is not difficult)
I am confident that if I obtain a loan modification I will be able to afford my mortgage and pay for the modified loan. I trust you will consider working with me on resolving this situation. (STEP 3. Show you are eager to pay for your mortgage if you are granted a loan modification)
Sincerely and Respectfully,
Your signature,
Co-Borrower Signature (if applicable)
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Loan Modifications are not providing the help American homeowners need. Of the millions of troubled borrowers only a small percentage qualify for a loan modification trial and most of the lucky ones get stranded in the way.
This article will provide you with a list of simple steps that will increase your chances of getting a permanent loan modification.
The number one reason why loan modifications don’t work.
Before we get into the practicalities of how to find your way through the maze of loan modifications it is worth spending a few words on the top reason why loan modifications are not working: They Don’t Address the Real Problem.
The real problem is unemployment and the Credit Crisis.
The fastest growing demographic for loan modification are prime mortgages. These are good mortgages, bought by borrowers with high credit scores that can’t pay their mortgage because of the increasing rate in unemployment. Unemployed borrowers struggle to get a loan modification because you can only qualify if you can prove you have nine months of unemployment benefits lined up. Most unemployed borrowers are unlikely to fulfill this requirement.
The other big reason loan modifications might not work for you is that your mortgage might be the least of your credit problems, you might be overstretched on your car loan, credit card loan, and other personal loans. Many commentators feel the government is trying to deal with a Mortgage Crisis when what they should be dealing with is the broader Credit Crisis.
First Step. Get the Information You Need.
Visit the government’s official website at www.makinghomeaffordable.gov . There you can find:
1) The current sponsored program the Government is touting.
2) Useful forms to help you compile the information you need to supply to lenders.
3) Find the closest government paid advisor that can provide you with personalized guidance.
Second Step. Decide what you can pay, and be realistic about it.
There is such a thing as a BAD LOAN MODIFICATION. After months of wasted time and resources some borrowers end up with a loan modification they still can’t pay.
You need to figure out what you can truly afford to pay on your mortgage every month. The government guideline is 31% of your monthly income but that might not work for you. Get some real figures together. How much do you spend on housing costs? What is your income, or average income if you’re self employed or work on commission. Put all this on paper, your lender will want a look at it.
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We live in the age of information. That is good and it is bad. It is good because you can get information from a great variety of sources and have the choice of seeing the world from a number of perspectives. The bad news is that you really need to get your information from a variety of sources because it is hard to know who to trust or who got the story right.
An example of this occurred last Wednesday when we received conflicting reports. The Mortgage Bankers Association said mortgage loan applications were up 16.1% for the week ending August 7 in relation to the same week last year. This news item seemed feasible because there has been an increase in the home sales in the second quarter in 39 states. Other figures also seemed to support this with mortgage refinancing accounting for 52.3% OF mortgage applications and adjustable rate mortgage applications also rose by 0.4%.
On the other hand, Reuters saw the situation in a completely different light by focusing on a different perspective of the situation. Reuters looked at a week over week seasonally adjusted decline of 3.5% which is not exactly the good news the Mortgage Bankers Association reported. Reuters cites the increase in interest rates as the reason for the drop coupled with the current 9.4% unemployment rate which is keeping homebuyers shy and cautions because of the economic climate.
So who is right? Are mortgage rates rising or dropping? The answer is that both are right, they just are focusing on different data to express their opinion. It is left to you to decide what argument is more compelling.
The Mortgage Bankers Association chose to compare this last week with the same week last year while Reuters analyzed the behavior of the market week over week.
To illustrate how this can affect our view of the situation look at these mortgage figures. The Mortgage Bankers Association reported that the cost to borrow on a 30 year fixed rate at 5.38% a rise of 0.21 percentage from the previous week. The lowest interest rate or cost to purchase a mortgage hit an all time low of 4.61% in the end of March. If you look at these figures it does seem like things are going rather badly and that the Mortgage Market is falling.
However if you compare this week’s interest rate with last year’s in the same week you see that last year the 30 year fixed rate mortgage was a the hair rising rate of 6.57%! A far cry from the 5.38% we now have.
So are we rising or falling? We are both it just depends what point of reference you choose.
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We live in a dog eat dog world that works for the loans, mortgages and DVD rental companies when you are late in returning a DVD, there is no mercy, you have to look after yourself and know what you are doing or get ready to lose some serious money. Finding a good deal in a competitive and complicated market like the credit industry is no easy task, fortunately it is not impossible and you don’t have to be a MENSA member to find a good loan modification for your mortgage or loan. You do however have to understand the basics of mortgages, loans and their respective modifications.
It is useful to view mortgages as the most basic investment a bank can make, that is an investment in you. They give you cash and get a steady return on their investment in the form of interest payments while they get their initial capital back with your principal payments. The rate of interest will depend on the going rate when you contracted the loan, how good your credit record was, how savvy you were when negotiating the loan conditions or a combination of all three of those factors.
Depending on the world economy, the going interest rate set by governments and a number of other factors banks are willing to lend at a lower or higher interest rate. If you can find a bank (it can be the same lender you are using now, or another one) that will lend you money at a cheaper interest rate you might be able to modify your mortgage to a lower interest rate. Similarly if you are struggling to make your mortgage payments you might be able to find a lender that will lend you the same amount but allow you a longer period of time to pay back, this will have the effect of lowering your monthly payments while increasing how much interest you pay on your mortgage. You can also modify your loan to increase the amount of cash you borrow or you could decide on any combination of all three options, lower interest, longer tenure and larger loan.
The key to find a good deal on your loan is to first check how expensive modifying your loan will be. To find this out you will need to know all the fees and costs your current lender is planning to charge you (a.k.a prepayment penalty fee) for paying early and depriving them of the interest you promised to pay and the fees your new lender will require to process the new loan with the modification you want. If you use a middleman business to process your application you will have to pay for their fee also. We don’t necessarily recommend this as most people can handle the paperwork themselves and the application businesses can’t do anything for your mortgage that you can’t do yourself.
Once you know the cost of a loan modification you need to know how much you are going to save with the loan modification. Savings can come in the form of lower interest rates or a shorter tenure. If you pay lower interest rates your overall interest payments for the mortgage can drop considerably and pay off your loan modification expenses in a matter of one or two years reaping substantial savings.
Of course the reason you want to modify your loan maybe not so much to save money but to make your payments affordable and this might involve lengthening your mortgage which will make your mortgage more expensive but at least you won’t lose your home.
It is as simple as that, compare the cost (real cost) of the loan mod and compare it to your savings, if there is a substantial saving you have found yourself a good deal.
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Mortgage Modifications, Mine Field Or Land Of Milk And Honey
Mortgage modifications and loan refinance can be both a mine field or a promised land of mortgage savings. Knowing the difference between a good loan mod or mortgage refinance is not really that complicated, with some simple tips you can quickly see if a mortgage is for you or is a bad idea.
This article will discuss the real savings and advantages a loan modification can have on your mortgage and your monthly payments (notice that there is a difference). It will also discuss briefly what dangers you must avoid so that modifying your mortgage does not cost you more than it should
Lower interest mortgages, smaller is much better.
All things being equal lower interest loans are better than higher interest loans. The good thing with mortgages is that apart from fees all mortgages ARE equal so interest rate is a great measure of the desirability of a mortgage.
Just to illustrate how much you can save if you can modify your loan to a lower interest rate check out this example. Imagine you are paying for a $200,000 home at a 30 year fixed interest rate at 6%. What would you be saving if you modified your mortgage to 5.5% instead? Each month you would save $63, in a year $756 and $7560 in ten years. That is with a 0.5% interest saving, imagine what you could do with a 2% drop in your mortgage interest rate.
Increasing your loan or mortgage tenure.
Another option borrowers opt for when modifying their mortgage is to lengthen the period of a loan to lower their interest rates. Let’s illustrate this with a simple example. Imagine you borrow $1,000 and you agree to pay it in 10 months. That means you will pay $100 a month plus interest. If you are struggling paying your mortgage you could lengthen the period of your loan to 20 months, which would mean $50 a month plus interest. Of course the minefield to look out for is the increased interest rate you would pay on a longer loan because interest is generally paid either monthly or yearly.
Decreasing the length of your loan.
Reducing the length of your loan is a great idea if you can afford it. A great time to do it is when the interest rates drop and you can use your interest savings to finance a portion of the increase in monthly payments. Again this is better explained with an illustration.
Imagine you have a 30 year loan at 6%. You would be paying around $1,199 a month and a total interest of $231,640 interest. If you reduce your loan to 15 years and find a lower interest rate of 5.5% your monthly payments will rise but only from 1,199 to $ 1,634, but you would only be paying $94,120 dollars for the loan.
This means that you would be saving around $140,000 on your mortgage with this modification.
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